Varun Beverages Case Study: Business Model, Financials, and SWOT Analysis

Summer is knocking on the door, and the scorching heat is followed by the never-ending craving for soft drinks like Mountain Dew, 7up, Tropicana, etc.

While these brands belong to Pepsi, only some know their manufacturer, Varun Beverages. Today, we will explore VBL’s case study and analyze its business model and SWOT analysis.

Varun Beverages Company Overview

Varun Beverages Limited was established in 1995 by Ravi Jaipuria, the chairman of RJ Corp. The company primarily makes and distributes beverage bottles. The corporation was the first to set up bottling facilities in India for PepsiCo products. Outside of the United States, VBL is the second-biggest PepsiCo beverage bottling company globally. In 2016, the company conducted its initial public offering (IPO).

Business Model of Varun Beverages

The company’s primary activities include bottle manufacture and distribution of PepsiCo’s product line, which includes bottled water, juices, and other non-carbonated drinks in addition to carbonated soft drinks like Pepsi and Mountain Dew. The company and PepsiCo have a franchisee agreement that grants them the authority to manufacture and market PepsiCo beverages within their designated regions.

Based on PepsiCo’s stated framework, the company has limited flexibility in terms of marketing techniques and product advancements.

Revenue Model

VBL’s revenue strategy is pretty concentrated because it primarily makes money through a franchisee relationship with PepsiCo, for which it pays royalties and franchise fees. They supply wholesalers, distributors, and retailers with their final goods. In addition, it provides distribution services to PepsiCo and other beverage businesses, charging fees for shipping, warehousing, and logistics. 

The company also earns a small portion of revenue from sponsorships, promotions, and advertisements. 

Market Details of Varun Beverages

Book Value	INR 49.94
52 Week High	INR 1561.95
52 Week Low	INR 687.5
Face Value	INR 5
TTM PE	88.75
Market Capitalization	182,429 Crores

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Financial Highlights of Varun Beverages

Balance Sheet

Particulars	31st Dec 2023	31st Dec 2022	31st Dec 2021
Non-Current Asset	10951.553	8214.213	7035.777
Current Asset	4235.630	3404.030	2546.113
Total Asset	15187.183	11618.243	9581.890
Equity	7084.653	5215.487	4196.697
Long Term Liability	3949.318	2434.002	2364.947
Current Liability	4153.212	3968.754	3020.246

According to the data in the above table, the company’s long-term and short-term assets are growing year over year, but its long-term liabilities have also risen from 2,434 Crores in FY2022 to 3,949.32 Crores in FY2023.

Income Statement

Particulars	31st Dec 2023	31st Dec 2022	31st Dec 2021
Revenue from operations	16321.063	13390.558	8958.291
Total Income	16400.422	13429.407	9026.216
Total Expenses	13660.583	11405.764	8019.608
Profit before tax	2739.360	2023.637	1006.68
Profit after tax	2101.813	1550.114	746.052

The preceding table clearly shows that the company’s earnings and revenue are growing steadily. The company’s net profit has also increased by 35% year over year.

Cash Flow Statement

Particulars	31st Dec 2023	31st Dec 2022	31st Dec 2021
Cash flow from operating activities	2390.778	1790.029	1231.422
Cash flow from investing activities	(3289.867)	(1704.598)	(1010.639)
Cash flow from financing activities	984.9	(17.942)	(177.682)

The cash flow from financing activities exhibits massive growth, with inflows posting a positive figure of 984.9 Crores for FY 2023, whereas the cash flow from operating activities shows a steady rise.

KPIs

Particulars	31st March 2023	31st March 2022	31st March 2021
Operating Profit Margin (%)	18.74	16.77	13.5
Net Profit Margin (%)	13.10	11.76	8.45
Return on Capital Employed (%)	27.26	28.88	18.15
Inventory Turnover	3.39	3.73	3.09
Current Ratio	1.02	0.86	0.84
Debt to Equity Ratio	0.75	0.72	0.60

We can infer from the aforementioned KPIs that the company’s operational profit margins are increasing year over year, while their ROCE indicates steady growth. Additionally, their current ratio, a liquidity indicator, indicates a significant jump in liquidity when compared to FY 2022.  

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SWOT Analysis of Varun Beverages

Strengths

• They have an advantage over other market competitors because they are licensed to manufacture, distribute, and market well-known brands of PepsiCo.
• Due to its extensive geographic reach, they are less vulnerable to the economic fluctuations of any one region.
• They offer cost-effective products and have competitive pricing strategies because their management properly manages the production costs.

Weaknesses

• Since the business depends on PepsiCo for its products, any modifications to the agreement between the two will raise concerns for the business. 
• PepsiCo’s product portfolio is restricted to carbonated drinks, which will raise their business risk. As a result, they must diversify their offerings.
• VBL’s beverages are a seasonal product, with summertime demand being the peak, which causes uneven revenue for the business in winters.

Opportunities

• The company can expand its business internationally by asking for new geographical licenses.
• The business must attract new customers by asking PepsiCo to change or modify their packaging of products.
• Companies can use the faster-growing e-commerce market to expand their online sales channel.

Threats

• The beverage industry is extremely competitive, with several well-known competitors like Coca-Cola and others.
• The organization must adapt to the changing consumer preference for healthy products and adjust its business strategies accordingly.
• The cost of raw materials, including sugar and plastics, is highly variable, and any change in pricing could have a detrimental effect on their profit margins.
• VBL’s product sales are entirely dependent on its supply chain and distribution network; any interruptions to these will result in a decline in sales.

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Conclusion

With its stronghold in the beverage business, Varun Beverages has made a name for itself. The company is positioned for long-term success thanks to its dedication to innovation, strategic growth, and customer satisfaction. Our never-ending desire for refreshing beverages will continue to be satiated because Varun Beverages regularly explores new product categories.

In addition, the business has increased its profits year over year and reported profits for the previous three years in a row. However, it is advisable to check your risk profile with your investment advisor and seek advice before making any investment decisions.

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